Excel | Scenarios exercise | Investment Appraisal - Scenarios

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Software ==> Excel  (151 exercises)
Version ==> Excel 2016 and later
Topic ==> Scenarios  (2 exercises)
Level ==> Average difficulty
Subject ==> Excel training
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Open the file within the folder named above.  This shows an investment appraisal model for a friend's business venture, in which you put in £40,000 at the end of year 1 and receive £10,000 back for 7 subsequent years.  At a discount rate of 8%, the Net Present Value of the investment is £11,170.

Note there are duplicate NPV and IRR on the inputs sheet (this is necessary because a scenario can not change cells on one sheet and compare results cells from a different sheet):

Setting up the Scenarios

Don't forget to give your cells range names.

Create the following 3 scenarios:

  • Smaller dividends - the income for the 7 subsequent years is £9,000 only
  • Higher initial investment - the original outgoing is £60,000, not £40,000
  • Interest rate rise - the discount rate is 10%, not 8%

Which of these scenarios would produce the lowest NPV, do you think?

Create a summary report showing the NPV and IRR for each scenario:

Scenario Summary

Raising the initial outlay had the worst effect on the NVP, but all scenarios lowered it.

Use Save As... to save the file in your own new Excel work folder.

You can unzip this file to see the answers to this exercise, although please remember this is for your personal use only.
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